QuantumScape vs. SES AI: Which Battery Stock is a Better Buy?

Electric vehicles (EVs) employ chemical energy kept in rechargeable battery packs for power.  Thus, EVs aren’t reliant on combustion engines, which emit carbon dioxide emissions that are the primary driver of global climate change.

According to Fortune Business Insights, the global EV battery market is estimated to expand at a CAGR rate of 28.1% during 2021-2028, hitting $154.9 billion in the terminal year. This growth will be driven by growing demand for EVs, advancement in battery performance, and a decrease in the price of Lithium-Ion batteries. 

With this in mind, I will analyze and compare two EV battery stocks, QuantumScape Corporation (QS) and SES AI Corporation (SES), to determine which stock is currently a better buy. 

Founded in 2010, QS is a development stage company that develops solid-state lithium-metal batteries for EVs. Based in Boston, Massachusetts, SES operates as a battery manufacturer that produces Li-Metal rechargeable batteries for EVs and other applications.

Recent Developments

On January 13th, QuantumScape announced that it had signed up a multi-year agreement with Fluence Energy to introduce its solid-state lithium-metal battery technology into Fluence's proprietary stationary energy storage applications. QuantumScape’s solid-state batteries can store more energy in less space compared to today's leading analogs. Both companies expect to sign a massive supply agreement under this collaboration. 

On February 4th, SES AI Corporation announced that it had completed a business combination with Ivanhoe Capital Acquisition Corp. As a result, the company's Class A common stock and warrants were listed on the New York Stock Exchange under the tickers “SES” and “SES.WS,” respectively. Later in February, the company incorporated its subsidiary SES Korea with intentions to build a pre-production facility in South Korea. This action aims to speed up A-sample batteries development with its strategic partners GM, Hyundai, and Honda. The company will use net proceeds raised by the recent business combinations to accelerate its growth plans. 

Financial Overview & Analysts’ Estimates

On February 16th, QuantumScape announced its fourth-quarter earnings results. The company hasn’t generated any revenues yet as it is still in the development stage. Its Q4 Non-GAAP EPS has been reported at ($0.16), missing analysts’ expectations by $0.05. 

When it comes to expenses, its general and administrative costs totaled $20.35 million in Q4, up 173% year-over-year. QuantumScape's research and development expenses stood at $46.79 million versus $22.73 million as of 4Q2020, primarily amid its investment in its Phase 1 and 2 engineering lines as well as its larger QS Campus. The company's Adjusted EBITDA stood at ($47.4 million) compared to a year-ago value of ($20.28 million).

As of December 31th, 2021, the company had cash and marketable securities of over $1.40 billion. It plans to have 2022 cash operating expenses between $225 and $275 million. So, QS shouldn't face any liquidity problems in 2022. 

Currently, Wall Street expects QS' EPS to improve in the first quarter of 2022 to ($0.12) compared to its year-ago value of ($0.2). Moreover, analysts expect QuantumScape to generate its first revenues of $1.95 million in FY2023.

SES AI Corporation hasn’t reported its fourth-quarter earnings yet. Therefore, let’s take a look at the company’s recently submitted S-1 filing. SES AI Corporation hasn't recognized any material revenues yet as well.

As of September 30th, 2021, its total operating expenses increased 147% year-over-year to $8.06 million, primarily due to a 66% increase in Research and Development expenses to $3.68 million and 318% year-over-year growth in General & Administrative costs to $4.37 million. As a result, the company's net loss came in at $8 million, which is 141% higher than its year-ago loss of $3.31 million. 

With assumed cash proceeds of about $489.3 million from the business combination and no redemption, SES cash and cash equivalents are expected to be $519.6 million. Taking into account SES' nine-month cash burn rate of $17.8 million, its liquidity position looks healthy with a low risk of equity dilution. 

For the fourth quarter, the analysts expect SES' EPS to stand at ($0.02). 

Comparing Options Market Sentiment

Looking at the March 18th, 2022 option chain for both QS and SES, we can determine options market sentiment by analyzing the calls/puts ratio. In QS' case, the open calls/open puts ratio at the $17.50 strike price comes in at 1.57x, implying a bullish options market sentiment. When it comes to SES, the open calls/open puts ratio at the $7.50 strike price is 0.23x, indicating a bearish options market sentiment.  

The Bottom Line 

While QS and SES should capitalize on the industry’s growth in the long term, I believe QuantumScape is currently a better investment. The company recently signed a multi-year strategic agreement, which can translate into a large-scale supply deal, thus accelerating QuantumScape's commercial success. In addition, QS' financials and liquidity position look more attractive than SES. Finally, options traders are more optimistic about QS stock at the moment.

QS shares were trading at $15.21 per share on Tuesday morning, down $0.40 (-2.56%). Year-to-date, QS has declined -31.46%, versus a -8.75% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

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